Download us treasury department updates guidance on due diligence and usd

US TREASURY DEPARTMENT UPDATES GUIDANCE ON DUE DILIGENCE AND USDDENOMINATED TRANSACTIONS
October 2016
The Office of Foreign Asset Control (“OFAC”) has
recently updated its explanatory document known
as ‘Frequently Asked Questions Relating to the
Lifting of Certain U.S Sanctions under the Joint
Comprehensive Plan of Action (JCPOA) on
Implementation Day’ (the “FAQ”). Among other
things, the amended FAQ provides additional
guidance to non-US persons seeking to carry out
due diligence on a potential Iranian counterparty.
It also brings some very welcome clarity to non-US
financial institutions looking to enter into USDdenominated transactions with Iranian entities
who are not on the (Specially Designated National)
SDN List.
Due Diligence
Prior to the update in October 2016, OFAC
recommended that a non-US person wishing to
trade with an Iranian entity should carry out
sufficient due diligence so as to ensure that such a
person is not knowingly engaging in transactions
with persons on the SDN List, such as the IRGC. It
was also recommended that such persons
document the steps taken to carry out the due
diligence. However, little guidance was provided to
help entities understand what amounts to
sufficient due diligence and whether it is necessary
to establish that the proposed Iranian
counterparty is not itself owned by an entity on
the SDN List.
OFAC has now confirmed that when conducting
due diligence, checking whether the potential
Iranian counterparty is on the SDN List is a good
first step, although it may not, in itself, be
sufficient. Non-US persons should be mindful of
their internal risk-assessment and compliance
procedures which would be based on the best
practices of the industry in which they operate. It
is also recommended that non-US persons ensure
compliance with any guidance that has been
issued by a domestic regulator. In the UK context,
this would include any EU sanctions that are in
place and in particular, the EU guidance on
“ownership and control”. Again, the need to
maintain records of due diligence efforts has been
emphasised in the recent update.
However, quite usefully, the amended FAQ now
clarifies that a non-US person will not necessarily
be sanctioned where it transacts with an Iranian
entity that is minority owned or controlled (in
whole or in part) by an entity on the SDN List. Still,
non-US persons should remain cautious to ensure
that such transactions do not involve Iranian or
Iran-related persons on the SDN List which may
trigger US secondary sanctions.
Summary of recommended practical steps to
take:





Check the US and EU lists;
Check World Check or similar (most law firms
have access and this will often reference a US
or EU listing but also reference links with a
listed person or entity);
Request counterpart evidences its directors
and
shareholders,
including
ultimate
shareholders;
Include a clause in your contract in which
counterpart confirms the contract will not
involve any person or entity subject to US or
EU sanctions and that the counterpart is not
owned or controlled by a listed person;
If any director or shareholder is listed on the
US or EU lists consider further due diligence;
USD-Denominated Transactions
Under the amended FAQ, non-US financial
institutions
(including
foreign-incorporated
subsidiaries of US financial institutions) are
allowed to process USD-denominated transactions
or maintain USD-denominated accounts that
involve, among others, Iran or persons ordinarily
resident in Iran. This is subject to the proviso that
such transactions or account activities do not
(either directly or indirectly) involve the US
financial system or any US person, and does not
involve any person on the SDN List.
However, non-US financial institutions are still
required to ensure that they do not process USDdenominated transactions that involve Iran
through the US financial system or otherwise
involve US financial institutions.
issues may be required by some banks before they
become involved in Iranian-related business in a
meaningful way.
AUTHOR
Nigel Kushner
Practical Impact:
[email protected]
Many non-US banks have been seeking
clarification from US enforcement agencies and
the amended FAQ represents a very helpful and
welcome step. However, clarification on other
+44 (0) 207 220 9132 or +44 (0) 787 708 4000
www.wlegal.co.uk
This newswire is for guidance only and is not a substitute for taking legal advice. This newswire does not necessarily deal with every important topic or
cover every aspect of the topics with which it deals. W Legal Limited and the author will not be liable for any reliance made on the contents. If you would
like further information or specific advice please contact us.
W Legal Limited. Registered in England and Wales. Registered Office 47 Red Lion Street, London, WC1R 4PF. Registered Company Number 06649868. A list
of directors is open to inspection at the Registered Office. Regulated by the Solicitors Regulation Authority. VAT Number 135 5493 06.
W Legal Limited © 2016